Home Writers Opinion Articles VAT Legal Tussle: The Implications And Solutions by Chukwuemeka Oluka.

VAT Legal Tussle: The Implications And Solutions by Chukwuemeka Oluka.


It is no longer news that some states of the federation struggle to keep their head above water because of the paucity of funds occasioned by challenging internally generated revenue structures. These states also allege that they are being short-changed by the Federal Government when sharing the national proceeds from Value Added Tax (VAT). It is on this premise that the Rivers State Government, one of the biggest contributors to the VAT proceeds has filed a suit through the state’s Attorney General against the Federal Inland Revenue Service (FIRS) and the Attorney General of the Federation to challenge the legality of the FIRS to collect VAT within the state. In a verdict delivered by a Federal High Court sitting in Port Harcourt on August 9, 2021, Justice Stephen Dalypop Pam ruled that the Rivers State Government and not the FIRS is entitled to collect VAT and Personal Income Tax in Rivers state territory [1]. The judgement by extension means that other states government’s constitutional right and authority to impose, collect, and utilize VAT within their respective territorial jurisdictions were upheld too.

Not satisfied with the judgment, the FIRS approached an Appeal Court to challenge the ruling. While the appeal was yet to begin, the revenue collection agency returned to the same Federal High Court in Port Harcourt to seek a stay of execution on the court’s ruling, pending the determination of their appeal. Recall that sequel to the landmark judgement in favour of Rivers state, the state House of Assembly had enacted the Rivers State Value-Added Tax Law of 2021 and it was signed by the Governor, Nyesom Wike on August 19th, 2021. It is against this backdrop that this research examines the issues around the current legal tussle. It examines the implications for parties involved while proffering some suggestions on the way forward.

What is VAT?

Yes, one may ask, what does VAT mean? It is a consumption tax paid when goods are purchased and services are rendered. It is a form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate consumer [2]. VAT was introduced in Nigeria with the enactment of the VAT Act No. 102 of 1993, to replace the Sales Tax, which had been in operation since 1986 under the Federal Government Decree No. 7 of 1986 [3]. According to the Decree establishing VAT, the FIRS claim it remains the legitimate authority to administer it. But the Rivers state government would maintain that the inability of VAT to be captured in items 58 and 59 of the exclusive legislative list of the 1999 constitution makes the FIRS unable to administer VAT. This is the bone of contention; this is the crux of the matter!

Matters Arising…

With this knowledge, it is interesting to know that the public spat between the Rivers State govt and the FIRS over the administration of VAT appears not going away soon. This followed the trial court’s dismissal of the application of FIRS for a stay of execution of its judgment in favour of the Rivers State Government to collect VAT and not the FIRS. In delivering his ruling on the stay of execution application by the FIRS, Justice Pam said the revenue collection agency failed to file an application to set aside the Rivers State Tax Law of 2021. Therefore, he maintained the state’s law on VAT remained valid and subsisting [1]. But despite the ruling, the FIRS had remained defiant, resisting the ruling of the court and had directed taxpayers in river state to continue to comply with the VAT Act pending the determination of its appeal by a superior court.

As events kept unfolding, Gov. Wike of Rivers took the battle a step further by releasing a letter written by the FIRS to the National Assembly dated July 1, 2021, asking the legislators to amend the 1999 constitution by moving VAT administration from the concurrent legislative list to the exclusive legislative list. The letter with reference number FIRS/EC/CWREP/0416/21/037, was titled, ‘Request for sponsorship of a bill for the establishment of the proposed Federal Revenue Court of Nigeria and the insertion of Value Added Tax under item 58 of the exclusive legislative list [5]’. In the letter, the FIRS Executive Chairman, Muhammad Nami, specifically pleaded with the Chairman of the Constitution Review, who is also the Deputy Speaker of the House of Representatives, Idris Wase to vest, exclusively on the FIRS, all adjudication of tax disputes, including federal tax laws, companies’ income tax, petroleum tax, income tax, capital gain tax, stamp duty, VAT, taxes, levies and other laws, regulations, proclamations, government notices, and rules. According to Wike, the FIRS letter, more or less, reinforced the judgement of the court and vindicates the position of the Rivers State government that it is not the responsibility of the FIRS to administer VAT generated in the states.

While the Rivers state government was still rejoicing in the recent trial court rulings at the time, The appellate court in Abuja, on Friday, September 10, 2021, ordered the Rivers State government as well as the Lagos state government – that had applied to be joined in the subsisting suit – to stay action on their bids to collect Value Added Tax (VAT) pending the resolution of the legal dispute on the matter. Premium Times reported that Haruna Tsammani, the judge who delivered the lead ruling of a three-man panel also suspended the operation of the law passed by the Rivers State House of Assembly and assented to by Governor Nyesom Wike, for the collection of VAT by the State government [4]. The court held that since parties had submitted themselves to the jurisdiction of the court (of appeal) for adjudication on the issue, they must not do anything that will destroy the subject matter of the appeal.

Honestly, one never gets enough of the myriads of evolving issues in the tussle between the Rivers State and the FIRS. It has been and continues to be a roller coaster of controversies. Nonetheless, this research would go on to explore the implication(s) the ongoing VAT controversy has on parties involved and most especially, on the fiscal federalism that is being practised in Nigeria.

The Implications

As the VAT legal battle rages, the researcher is somewhat coy and a bit careful not to pre-empt the decision of the superior courts before which the final interpretation of the law on the matter lies. This is based on the realization that when a matter goes on appeal, a superior argument will arise. Even, a case can be lost on appeal based on technicalities. When a matter is entertained based on substance, one could still lose a case on appeal. Nonetheless, based on the realities on the ground and since the trial court’s ruling in Port Harcourt has been in favour of states to administer VAT, most of the implications the research identifies, tilts towards what obtains if Rivers State wins the legal battle in the end.

With this, the first implication will be that states can now enact their tax laws within a new tax regime and then set a rate for it. This will give them leverage to improve their financial statuses. Whether this development will be welcome across economically less-viable states of the federation is a different question. But certainly, this is a conversation Nigeria must not shy away from, because, now is the time for it to be heard.

Another implication is that the current revenue allocation formula will now be up for serious scrutiny and discussion. The reality had been that some states – especially those with huge VAT revenue potentials – have held that the Federal Government has been unfair to them in terms of the revenue sharing formula. In the month of June, VAT collected in Rivers State was N15.1billion; what they were given was N4.7billion. The VAT collected in Lagos state was N46.4 billion but what it got was N9.3billion. However, Kano state contributed N2.8billion and then was given the same amount in allocation [5]. This is why the governor of Rivers state would describe this sharing formula as an injustice. So, the current litigations give states like Rivers and Lagos, which have always cried of injustice, an excellent window to put things in the right perspective. But when this is done, the truth is that some states with low economic profiles are likely going to get impoverished.

Even the Federal Government will bear the brunt hugely should they lose the legal tussle eventually. This is because the FIRS has been one of the largest revenue pools for it. Also, given that the Federal Government is being plagued of late with borrowing funds at all costs, their balance sheets will now go from the sublime to the ridiculous. How this will affect the national Gross Domestic Product (GDP) in the long run is yet to be seen, considering that the economy showed signs of full recovery after a period of strong recession.

the anticipatory VAT regime. The argument is that it will lead to multiplicity of taxes especially where items are sold and then moved from one jurisdiction to another. The disparity in VAT charges at the point of goods’ procurement and sales that will hold sway in different states of the federation would lead to tax-payers paying double.

Also, the practice over the years, by the Federal Government of collecting tax accruing to the states has been alleged to stifle and prevent fiscal federalism from blossoming successfully in Nigeria. Should the final judgement be in favour of states to collect VAT, the implication will be that the Federal Government will now rethink other governmental functions and financial relations accordingly amongst states and local governments with a view to shedding more of its weight to end any perceived ‘uneven’ fiscal federalism. This will set the precedent for a properly federated structure to come on board.

The Way Forward

Now that the legal battle has been taken to superior courts, it becomes expedient that they accord accelerated hearing to it. In doing so, the judiciary must decline any temptation to be used by the Federal Government to do any dirty jobs in the VAT legal tussle. Any attempts, for instance, to move the matter from where it currently is to another court that will be seemingly favourably disposed to granting judgement to one party at the expense of the other, will automatically throw a spanner in the works of our democracy. The scandal of ex-parte order of interim injunctions and conflicting rulings from courts of coordinate jurisdiction must be resisted in this case.

Reliance on the Federal Government has made some states feel somewhat lazy and laid back. As a potentially new tax regime takes form, it presents a wake-up call for governors of economically less-viable states to wear their thinking caps to start thinking outside the box. They must move away from the idea of a ‘feeding bottle’ system of government that goes cap in hand to Abuja to beg for funds. These states must roll up their sleeves, work hard and explore alternative and viable ways to survive. This includes collaborating with other regions to grow their revenue base.

In the meantime, the logic of not consuming certain things but benefit from them when VAT revenues are shared should be discouraged. Many states in the North have Sharia (Hisbah) police in place and they prevent people from drinking or selling alcohol, but they end up benefiting from the same VAT proceeds from alcohol collected in other parts of the country. These states should rethink the destinies they have chosen for themselves and start creating the enabling environment for businesses to thrive. In a related development, if a beauty pageant is disallowed in a state, for instance, Investments that would’ve come to the state concerning entertainment would’ve been lost. By this, states are encouraged to scale up their economic policies to attract investments since they will be the ones to get the VAT benefits.

While states of the federation anticipate the final judgment on VAT administration, it is being suggested that they should prepare for a transition period of VAT regime if the final verdict goes in their favour. There should be a lot of orientation and education for business owners and the public to know the institution empowered by law to collect VAT going forward.

Do some states have the capacity to collect VAT like the FIRS do in case the legal tussle finally goes their way? Well, while capacity talks about the infrastructure or the provisions made for the seamless collection of VAT, these states, if they do not have the capacity in place, can learn from investments hubs like Lagos, Ogun, Kano, and Rivers states to understudy how they’ve been able to manage their tax collection schemes over the years. While this is done, the conversation has to be shifted from VAT collection to the responsibility of the states – if the power eventually rests on their table – to properly now administer the humongous amount of money that will be coming to them through VAT.

In all, there is simply no gainsaying that Nigeria has witnessed a dramatic turn of events lately due to the current impasse between Rivers State and the FIRS over VAT collection and administration. It shows that we are leaving in interesting times, and interesting it is to see that states are gearing up to take their destinies into their own hands. Good a thing parties involved in the legal tussle are respecting the rule of law and doing so within the ambits of the law. Therefore, the time is now for our courts to rise to the occasion, not fearing whose ox is gored in the VAT tussle, and be ready to expand the frontiers of our legal jurisprudence for good while saving our democracy some impending blushes.

[1] https://www.channelstv.com/2021/09/06/court-refuses-firs-application-to-stop-rivers-govt-from-collecting-vat/ (accessed on September 16, 2021, @15:00 hrs)
[2] https://www.collinsdictionary.com/amp/english/value-added-tax (accessed on September 21, 2021, @15:00 hrs)
[3] https://ng.andersen.com/the-new-vat-regime-and-the-potential-implications/ (accessed on September 16, 2021, @14:00 hrs)
[4] https://www.premiumtimesng.com/news/headlines/484203-vat-collection-tussle-appeal-court-orders-rivers-lagos-to-halt-enforcement.html (accessed on September 16, 2021, @14:00 hrs)
[5] https://guardian.ng/news/manufacturers-deplore-stalemate-as-firs-rivers-insist-on-vat-collection/ (accessed on September 16, 2021, @14:00 hrs)


Chukwuemeka Oluka is a graduate of Electronic and Computer Engineering from the Nnamdi Azikiwe University, Awka, Anambra State. He is a research enthusiast and a passionate writer. He writes in from Enugu and can be reached via “write2oluka@gmail.com

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